India has long been a global hub for automobile manufacturing, particularly in two-wheelers, commercial vehicles, and passenger cars. However, the country has remained heavily dependent on imports for advanced automobile components. The COVID-19 pandemic in 2020 clearly exposed this structural weakness, as global supply chain disruptions forced India to confront its heavy reliance on foreign parts and technologies. In response, the need to boost domestic manufacturing became urgent, and consequently, the government recognized that fostering local production was key to achieving self-reliance in the automotive sector.
To address these challenges, the Government of India introduced the Production Linked Incentive (PLI) Auto Scheme, aimed at incentivizing domestic production of advanced automobile components and electric vehicles. The Union Cabinet approved the scheme on 15 September 2021, and it was officially notified by the Ministry of Heavy Industries on 23 September 2021. Incentives under the scheme became applicable from the financial year 2022-23, and the scheme was initially planned for five years (FY 2022-23 to FY 2026-27). A subsequent Gazette notification in late 2023 extended the scheme by one year, now running until FY 2027-28.
What is the PLI Auto Scheme?
The Production Linked Incentive (PLI) Scheme is a government initiative designed to promote domestic manufacturing of advanced automobile components. In simple terms, it provides financial incentives to companies that achieve incremental sales of eligible products manufactured in India. As production increases, companies earn higher incentives, and consequently, greater sales of qualified products lead to greater financial rewards.
The scheme primarily focuses on:
- Electric vehicles (EVs) and hydrogen fuel cell vehicles
- Advanced batteries and energy storage systems
- Power electronics, inverters, and converters
- High-value auto components like ADAS safety systems, transmissions, and advanced motors
Essentially, PLI is aimed at encouraging companies to “Make in India” high-tech automobile products, reducing import dependence, and increasing India’s competitiveness in the global automotive market.
Why India Took This Step
India’s decision to implement the PLI Auto Scheme therefore, stems from a critical need to reduce import dependence and at the same time strengthen domestic manufacturing. During the COVID-19 pandemic, India experienced significant disruption in the supply of key automobile components.
Some of the critical items heavily imported included:
- Lithium-ion battery cells for electric vehicles
- Semiconductors and chips (ECUs, sensors, controllers)
- Power electronics (inverters, converters)
- Advanced electric motors
- Transmission and drivetrain components
- Advanced safety systems (ADAS sensors, radars)
- Emission control technologies
These imports primarily came from countries like China, South Korea, Japan, Taiwan, and the European Union. The pandemic exposed the risks of relying on global supply chains, making it clear that India needed to develop its own advanced manufacturing ecosystem.
By implementing the PLI Auto Scheme, India aims to:
- Promote self-reliance in high-value automotive technologies
- Reduce import dependence on critical components
- Position India as a global hub for EV and advanced automotive manufacturing
- Encourage companies to innovate and produce Made-in-India products
How the PLI Scheme Works
The PLI Auto Scheme is performance-based, meaning that only companies that meet certain investment and sales benchmarks are eligible. Here’s a simplified breakdown:
Eligibility:
- Indian automobile manufacturers and component producers with registered operations.
- Minimum investment and sales thresholds must be met.
Incentive Calculation:
- Incentives are given as a percentage of incremental sales beyond a pre-determined benchmark
- The higher the growth in domestic manufacturing, the higher the reward
Focus Areas:
- Advanced automotive technology
- Electric vehicles and components
- Safety, emission, and power electronics
Duration:
- Initially FY 2022-23 to FY 2026-27
- Extended to FY 2027-28 through a Gazette notification
The ultimate goal of PLI is to encourage companies to manufacture locally, increase exports, and promote “Made in India” products in both conventional and electric vehicle segments.
Who Benefits from the Old PLI Scheme?
The old PLI Auto Scheme primarily benefited large manufacturers who could meet high investment and revenue thresholds. The main beneficiaries include:
Large OEMs (Original Equipment Manufacturers):
- Passenger vehicle and commercial vehicle makers
- Established EV manufacturers with the capacity for large-scale operations
Big Auto Component Manufacturers:
- Companies producing advanced batteries, motors, and power electronics
- Suppliers of high-value safety and emission control components
Well-funded EV companies:
- Manufacturers capable of large upfront investments in production capacity
Who was left out?
- Small and medium-sized enterprises (MSMEs)
- Startups in the EV sector
- Innovative component makers without large financial resources
The high eligibility criteria excluded many smaller players, prompting the government to consider a new, startup-friendly PLI framework.
Pitfalls of the Current Scheme
While the PLI Auto Scheme has successfully attracted large-scale investment and boosted production, there are some limitations:
- Limited participation of startups and small enterprises – Minimum investment and sales benchmarks are challenging for small players.
- Focus on larger companies – Smaller EV manufacturers and component startups often cannot participate.
- High upfront investment requirements – Can discourage innovation and niche solutions.
- Partial impact on imports – India still relies on critical components like lithium-ion cells and semiconductors, which are imported.
A New Version of PLI in the Works
Recently, reports indicate that the Government of India is considering a new PLI scheme specifically for startups and small enterprises. While the current scheme remains valid, the new framework aims to:
- Lower entry barriers for small manufacturers
- Encourage early-stage EV startups to participate
- Provide financial incentives tailored to smaller production scales
- Foster innovation in advanced battery technology, electric two-wheelers, and components
- The new PLI scheme is not yet approved; it is still under discussion
- Government action depends on industry consensus and formal proposals
- Once approved, it would complement the existing PLI Auto Scheme, making the incentives more inclusive
This new initiative could strengthen India’s EV ecosystem and support a broader base of manufacturers.
Conclusion
The PLI Auto Scheme represents a strategic initiative by India to achieve self-reliance in advanced automobile manufacturing. Against this backdrop, the scheme incentivizes companies to manufacture high-tech components locally and thereby reduces import dependence. At the same time, it boosts exports and ultimately positions India as a competitive global manufacturing hub.
While the current scheme has primarily benefited large manufacturers, the government is actively considering a new PLI framework for startups and small enterprises, ensuring that innovation and domestic production grow hand in hand.
India’s journey from import dependence to domestic production of advanced automobile parts is thus a significant step toward global competitiveness, while simultaneously strengthening technological self-reliance and promoting sustainable manufacturing. As the PLI scheme continues to evolve, it promises to reshape the country’s automotive landscape, strengthen the EV ecosystem, and create opportunities for both established players and new entrants alike.
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